Inflation fears deterred Fed from rate cut

WASHINGTON - The Federal Reserve maintained its stand against cutting interest rates because of continued concern about inflation, according to meeting minutes released yesterday.

That concern prevailed as the Fed policymakers decided at their June 27-28 meeting to hold rates steady despite a competing worry that the national housing slump might short-circuit the economic expansion.

Fed Chairman Ben S. Bernanke and his central bank colleagues noted there had been some improvements on underlying inflation readings, but said this was "not seen as convincing evidence that the recent moderation of core inflation would be sustained," according to the minutes. Core, or underlying, inflation excludes volatile energy and food prices, and is closely monitored by the Fed.

"Participants were wary of drawing any firm conclusions about future trends from a few monthly readings that could reflect transitory influences, and remained concerned about forces that could contribute to inflation pressures," the minutes said.

High food and energy prices, meanwhile, have boosted the overall inflation rate, making Fed officials wonder whether that will affect the mind-sets of consumers, businesses and investors, which in turn could make them act in ways that could aggravate inflation. Some policymakers said that posed "some risk of a deterioration in inflation's expectations."

Fed members continued to express the belief that the economy would make its way safely through the housing slump, even without lower interest rates.

"Although the housing market remained a key source of uncertainty about the outlook, Fed members thought it most likely that the overall economy would expand at a moderate pace over coming quarters," the minutes said.

Against this backdrop, these policymakers felt comfortable leaving a key interest rate at 5.25 percent, where it has stood for slightly more than a year.